Natural gas–weighted stocks and natural gas
Between April 3, 2017, and April 10, 2017, natural gas futures contracts for May 2017 rose 3.6%.
An equal-weighted basket of natural gas–weighted stocks rose 3.0% during that period. These stocks operate with production mixes of at least 60.0% in natural gas (UNG) (GASX) (FCG) (GASL). They’re also part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Best and worst natural gas stocks
The natural gas–weighted stocks that outperformed their peers from April 3, 2017, to April 10, 2017, include the following:
- Southwestern Energy (SWN): 6.0%
- Chesapeake Energy (CHK): 5.2%
- Range Resources (RRC): 4.6%
These three stocks also outperformed natural gas. They have high correlations with natural gas, as we saw in Part 3 of this series.
The stocks that underperformed their peers during this period include the following:
- Rice Energy (RICE): 1.1%
- Gulfport Energy (GPOR): 1.1%
- WPX Energy (WPX): -0.60%
As we saw in the previous part, WPX and GPOR have low correlations with natural gas.
Apart from their correlations with natural gas in the short term and their earnings in the long term, the performances of some natural gas–weighted stocks could also be impacted by movements in crude oil (USO) (UCO) prices. Crude oil prices can drive the sentiment of the entire energy sector, not just crude oil stocks. Crude oil rose 5.7% in the trailing week.
Natural gas–weighted stocks and natural gas since their 2016 lows
On March 3, 2016, natural gas futures touched a 17-year low of $1.64. From March 3, 2016, to April 10, 2017, natural gas (UNG) (BOIL) (UGAZ) (FCG) prices rose 97.6% on a closing price basis. Our equal-weighted basket of upstream stocks rose 37.1% during the same period.
The weaker rise in natural gas–weighted stocks compared to natural gas could be attributed to the weaker positions of some of these natural gas–heavy companies due to chronically low natural gas prices over the last few years. They’re also likely pricing in weaker natural gas prices in the future due to rising natural gas production, despite weak prices.
Since March 3, 2016, the following natural gas–weighted stocks were among the outperformers:
- WPX Energy (WPX): 154.1%
- Rice Energy (RICE): 137.3%
- Chesapeake Energy (CHK): 45.9%
WPX and RICE have also outperformed natural gas since its low in March 2016.
The following natural gas–weighted stocks didn’t fare as well during the period:
Natural gas–weighted stocks underperformed natural gas in the trailing week and since the commodity’s low in March 2016. We’ll have to wait and see if the trend continues, particularly if natural gas doesn’t hold on to recent gains with the onset of spring.
Be sure to visit Market Realist’s Energy and Power page for more analysis on natural gas’s fundamentals.